Central bank chief says 'prudent monetary policy' remains

Zhou Xiaochuan, Governor of the People's Bank of China (PBOC), China's central bank, smiles at a press conference during the third Session of the 12th NPC (National People's Congress) in Beijing, China,Mar 12 2015. [Photo/IC]

China has not changed its "prudent monetary policy" although economic growth has slowed to a "new normal" stage, Zhou Xiaochuan, the central bank governor, said at a news conference at the annual session of the National People's Congress on Thursday.

The growth rate of broad money supply - M2 - is an indicator reflecting the tone of monetary policy, and it will be moderate this year even though the central bank has taken targeted easing measures, said Zhou.

The M2 growth rate was targeted at 12 percent this year, Premier Li Keqiang said in his annual government work report.

"The 'new normal' is a normal state, not special, so there is no need to use a new word to explain the monetary policy," he said.

The central bank has cut benchmark interest rates twice since November. It also reduced the amount of cash that banks must hold as reserves in early February, in order to increase market liquidity and offset the increase of capital outflows.

"We should pay close attention to the prices changes when price fluctuations appear in the international commodity market. But we should be cautious and take a longer period to observe the changes."

Adjustments to monetary policy tools have so far generally maintained moderate liquidity in the financial market," said Zhou.

Yi Gang, the central bank's deputy governor, highlighted that a "proactive fiscal policy and prudent monetary policy" is the proper combination to deal with the current industrial deflation.

China's Producer Price Index has dropped for 37 consecutive months, indicating deflationary risks in the sector. The price decrease pressure is faced by the whole world when oil and other commodity prices keep failing, he said.